7 PSBs may get Rs 286 billion through recapitalisation bonds by Dec-end

All banks, except Syndicate Bank, which are expected to receive capital infusion under RBI's PCA are facing certain lending restrictions

Seven public sector banks (PSBs) will receive a capital infusion of Rs 286 billion through the upcoming tranche of recapitalisation bonds by the end of this month, a government official said on Thursday.

All banks, except Syndicate Bank, which are expected to receive capital infusion, are under the Reserve Bank of India’s (RBI’s) prompt corrective action (PCA) — an early warning mechanism to restore the health of banks — and facing certain lending restrictions.

“The department of financial services has sent the bank-wise detailed breakup of recapitalisation to the department of economic affairs and the approval is expected to come before December 31,” the official said.  According to the plan, Bank of India is expected to get the highest capital infusion of Rs 101 billion, followed by Oriental Bank of Commerce, which might get capital of Rs 55 billion through recapitalisation bonds, sources said. 

Bank of Maharashtra may get Rs 44.5 billion, UCO Bank may receive Rs 30.6 billion and United Bank of India Rs 21.6 billion.

Central Bank of India and Syndicate Bank are expected to get Rs 16.8 billion and Rs 16.4 billion, respectively.

Business Standard had reported on December 21 that the government wants to prioritise recapitalising banks, which are seen as possible candidates by the finance ministry to come out of the Reserve Bank of India's prompt corrective action because of improved finances. 

The government expects four-five banks to come out of the RBI's PCA after the regulator considers notifying an exit mechanism for banks to come out of the framework next month.

Eleven PSBs are under the RBI's PCA. The government had recently requested the regulator to bring some banks out of PCA based on their improved provisioning of bad loans and better financial condition.

Currently, any of the three scenarios — banks registering net NPA level of 6 per cent or below of their borrowings, two consecutive years of negative returns on assets, defined as a percentage of profit to average total assets, or the capital adequacy ratio falling below the regulatory requirement - can prompt the RBI to put a bank under the PCA.

Though most of these banks to be recapitalised this month had seen a rise in their provision coverage ratio in the second quarter of the current financial year, Central Bank of India and Oriental Bank of Commerce witnessed deteriorating regulatory capital during the period compared to the previous quarter.

Last week, the government had announced an additional capital infusion of Rs 410 billion in PSBs, taking capital injection into lenders to Rs 1.06 trillion this year. The Budget had announced a capital infusion of Rs 650 billion in the current financial year. 

The government had announced a Rs 2.11 trillion recapitalisation plan for PSBs in October 2017. This included a plan to infuse Rs 1.35 trillion through recapitalisation bonds. Last year, the government had infused Rs 880 billion into PSBs and this year so far the government has injected Rs 229 billion.